UAE's non-oil economy slows in August amid sluggish employment

UAE's non-oil private sector economy slowed in August despite rising business optimism. Government spending and investment, and net exports are likely to be the engines of growth this year. Leslie Pableo / The National

The expansion of the UAE’s non-oil private sector economy eased to a five-month low in August as new business orders grew at the slowest pace in 20 months amid a sluggish job market, according to the latest survey by Emirates NBD.

The seasonally adjusted purchasing managers’ index – a composite indicator designed to give an overview of operating conditions in the non-oil private sector economy – dropped to 55 in August, from 55.8 in July. A reading above 50 suggests the non-oil economy is growing, while a reading below 50 indicates a contraction.

Despite slower growth, optimism among businesses in the UAE’s non-oil private sector accelerated to a record high during the latest survey, compiled by Emirates NBD and produced by IHS Markit, a financial information services company. Many companies attributed business confidence to new product launches, projects surrounding Expo 2020 and marketing initiatives.

Despite improving business confidence, the latest data marked the first slowdown in employment since the survey began in August 2009. The rate of decline was slight overall, with some firms attributing job-shedding to efficiency savings.

“The softness in employment, which has been evident to some extent since 2016 but appears to have slowed even further this year, is surprising in the context of strong reported growth in output and new orders in the private sector over the same period,” said Khatija Haque, head of Middle East and North Africa research at Emirates NBD.

“In our view, the apparent lack of job creation year-to-date is likely due to cost containment and efficiency measures being implemented by firms in the face of a sustained squeeze on margins.”

Output growth accelerated and remained sharp overall, and continuing the sequence seen since April, new export orders rose once again during August. The rate of growth was marked overall and reflected stronger inflows of new business from neighbouring GCC countries, the survey noted.

On the price front, the vast majority of companies in the UAE’s non-oil private sector reported unchanged cost pressures since one month ago. Meanwhile, some companies reported price discounting, which was linked to promotional activity, the survey noted.

"Private consumption is unlikely to contribute significantly to GDP growth this year, with government spending and investment and net exports likely to be the engines of growth,” Ms Haque said.